Words of wisdom from Peter Lynch:
“The real key to making money in stocks is not to get scared out of them.”-Peter Lynch
And if you don’t trust Peter’s judgment, consider this…
From 1982 to 2001, the S&P 500 gained a 11.8% per year. Had you invested $10, 000 at the beginning of this timeframe, you’d have $93, 075 if you keep your nerve through the ups and downs and stayed in the market. In contrast, these are the returns if you jumped in and out and even slightly mis-timed the sometimes dramatic recoveries from the bottom:
If you missed the 10 best days, you’d have $56, 044
If you missed the 30 best days, you’d have $28, 144
If you missed the 50 best days, you’d have $15, 780
Considering that there are roughly 250 trading days in a year, this means that missing out on the best 0.02% of the investing days over this 20 year period (i.e., the best 10 of 5000 days) would’ve reduced your total return by nearly 40%! In contrast, if you’d sat tight throughout, you’d be sitting pretty right now.
And keep in mind that this time frame extends halfway into the 2000-2002 burst of the dot com bubble, and also includes the Black Monday crash of 1987 when the Dow Jones Industrial Average dropped by nearly 23% in a single day. Thus, while it covers and overall strong period for stocks, it’s not an especially atypical timeframe.
[Source: “The Best Investment Advice of All Time” by Carla Fried, Money Magazine]